ARM: A Gnawing Sense of Unease

It’s been a year since two cataclysmic news bits hit the wires, the two stories not unrelated.

The UK decided to Brexit the EU on 23 June 2016, and ARM announced it had been sold to Tokyo-based SoftBank three weeks later, on 18 July 2016. For some, these developments would have been unthinkable up to the moment they unfolded, but now they’re both a reality.

Article 50 was triggered by the British PM on 29 March 2017, and the UK will no longer be in the EU as of March 2019.

ARM is no longer publicly traded, and although it was once the crown jewel of Britain’s technical portfolio, it is now a wholly owned Japanese enterprise. Or at least it was, until 7 March 2017 when SoftBank announced an even more astonishing bit of news.

The company had sold 25-percent of ARM to Saudi Arabia – an $8 billion chunk of ARM out of the $32 billion that SoftBank paid for the company last year. This sale was accomplished by way of the newly launched Vision Fund.

An eye-watering $93 billion investment behemoth which is comprised of $45 billion from Saudi Arabia, $28 billion from SoftBank, $10 billion from the United Arab Emirates, and the remaining $13 billion coming from corporate entities such as Apple, Qualcomm, Sharp, and Foxconn.

As interesting as these numbers may be – and they do make it easier to understand why sometimes this investment fund is called SoftBank’s Vision Fund and sometimes it’s called Saudia Arabia’s Vision Fund – it’s the SoftBank $28 billion that’s relevant to our discussion here.

To assemble their $28 billion stake in the Vision Fund, SoftBank put $20 billion in cash into the pot and added an additional “in-kind” investment of $8 billion in the form of the 25-percent stake in ARM.

The end result, to point out the obvious, is that Saudi Arabia – the majority stake holder in the Vision Fund – now potentially has a very influential say in how ARM does business.

Clearly SoftBank continues to be the majority stake holder in ARM, but Saudi Arabia has the bigger say in the Vision Fund and that fund now owns a part of ARM.

ARM is now partially owned by a corporation, and partly owned by a nation-state – several nation states, in fact, as the UAE is also a partner in the Vision Fund.

And hence, concerns are racking up around the world.

Not necessarily in the UK, Japan, Saudi Arabia or the UAE, but in those locations where semiconductors are a national pastime. Locations where placing an ARM core in your design now means that you’re having to bet that Saudi Arabia and the UAE are not actually involved in the technology, except as financial backers.

And that is making some people very uneasy.

In fact, over the last several months – since the SoftBank/ARM/Saudi/Vision Fund deal was announced – I’ve had numerous conversations with people who are very concerned.

They’re worried that technology previously overseen by corporate players, whose motivation is market dominance, may now be manipulated by these new nation-state overseers, whose motivations may be something else.

Paraphrasing from several of my conversations with industry players: “It’s a mystery. ARM was independent forever, and there was no reason to think it would ever be otherwise.

“But now there are qualms, big qualms. All of a sudden, using an ARM core in a design comes with a huge, huge risk.

“Customers in China are not happy, certainly customers in Israel are not happy, and there is concern among some American customers as well – particularly those involved in the defense industry.

“All of these customers are saying the same thing. They’re not sure they like seeing Saudi Arabia in a position of potential power over ARM.

“And these customers are saying their gnawing sense of unease may be motivation for looking at options other than ARM. And they’re not kidding.”

So there you have it.

Despite the fact that Semiconductor Engineering’s Ed Sperling avoided all discussion of issues related to global politics when he had ARM CEO Simon Segars on stage in Silicon Valley at the ESD Alliance CEO panel in April – the global politics are real, visceral, and problematic.

And they’re part of the landscape of everybody’s business today in semiconductors.

ARM is now partially owned by state-sponsored investors who are seen as potential adversaries to some of the major countries in which ARM cores are used in designs. If that doesn’t warrant some public discussion in Silicon Valley, really what does?

A gnawing sense of unease is problematic. It’s not good for ARM and it’s not good for their customers.

If the leadership of the company were willing to address those concerns, it’s true – it might just be window dressing. But at least there would be an appearance of transparency and an acknowledgment of the unease.

Right now, however, the window just looks obscure. Mysterious and obscure.

**************The witty British Press …

Headline: Softbank tears off chunk of ARM, feeds it to hungry Saudis

Sub-head: A quarter of prime British chip goodness will fall under Middle Eastern ownership

Read the full article here, written by Gareth Corfield of The Register on 8 March 2017.